Since Bitcoin’s 2009 inception, virtual currencies have taken off as people have become captivated by the possibilities offered by Blockchain technology.
Visionary developers and business professionals have since then, used its decentralised ledger technology to begin developing their own solutions. The development of Ethereum's virtual currency is in part responsible for the boom in initial coin offerings (ICO) in 2017, which saw CryptoCurrency tokens sold to prospective investors looking for growth.
Not much different to an initial public offering, an ICO is when a company makes a token available for purchase to the general public. Generally, this doesn’t represent a share in the company and is without any guarantees. An ICO is a leap of faith by investors looking to make money by pure speculation, although some may be genuine, it has also led to many scams – which have seen thousands of investors lose their money. The money used to “invest” in these ICO’s usually comes in the form of Bitcoin or Ethereum.
One of the worst types of cryptocurrency scams involves a fake ICO (initial coin offering). Some fake ICO scams use basic investment fraud, promising to be successful companies there to help you make a profit but in reality the company doesn’t exist although the fraudsters will go to great lengths to appear a weighty organisation if you were to search online.
Other extensive claims involve companies assuring you they can make your money work for you but only if you are able to send some Bitcoin immediately, only for them to disappear with your money. While there are real mining pools you can be part of, remain aware that it isn’t as easy as sending coins and getting rich. Bitcoin Forking schemes
Another scam involves “making the process simple for you”, you might be told that all you need to do is download the wallet and transfer all your funds, only to find that all your money has disappeared. Another scam involves a forking scheme, where current owners are promised new tokens by simply adding their private keys online, this scam sees a high likelihood of you losing all your funds.
Not all exchanges are trustworthy. Scammers may set up fake online exchange services that imitate the activities of legitimate online cryptocurrency exchangers, claiming to support multi-currency conversion, and even displaying fictitious positive ratings and reviews. Victims then get defrauded when they are invited to transfer their money to digital wallets that scammers soon close after receiving the funds.
One of the latest Bitcoin schemes includes offering a financial reward when you recruit new members and larger payouts for larger numbers of investors in the pool. Heading into 2019 bear in man that a common factor of scams is the request for a commitment of cash up front.
Pincoin is one of the more recent scams that disrupted the crypto space. Initially their ICO was successful, raising $660 million from investors. Pincoin then announced that a token called iFan would be developed. This token would be used to compensate the investors. But as soon as the token was issued, the Pincoin team disappeared. Afterwards it was found that none of the information about the team or the company was verified.
Labelled a clear ponzi scheme, OneCoin, is another massive scam to have surfaced in the market. Many believe the coin didn’t even exist. Several governments repeatedly warned people not to invest in OneCoin, but many still fell victim – in fact investors were scammed by $350 million. Earlier this year Indian authorities raided OneCoin arresting 18 people.
Also tainted with a ponzi scheme scandal, Bitconnect which has since discontinued operations saw users exchange Bitcoin for Bitconnect Coin (BCC) on the Bitconnect platform, after being promised astronomical returns on their investments. The company also ran a lending programme where users lent BCC out to other users to make interest depending on how much BCC they’d lent on the platform.
Plexcoin, another typical return on investment ponzi scheme, promised investors over 1300 percent return on investment per month before the US Securities and Exchange Commission (SEC) ordered the company to stop operations. Over $15 million had been raised during the Plexcoin ICO; fortunately all of the funds were frozen by the SEC’s Cyber Crime Unit, and founder Dominic Lacroix was jailed.
Endorsed by celebrities such as star boxer Floyd Mayweather and DJ Khaled, Centratech offered a supposed Visa and MasterCard debit card service that would allow users to convert cryptocurrencies to fiat. This ICO raised $32 million using fraudulent executive biographies, misleading marketing material and paid celebrities to endorse them on social media.
An example of a famous email scam saw an exchange Canadian Bitcoins, which managed Bitcoins for Canadian investors, get hacked via a fraudulent email pretending to be the CEO asking all security codes be sent to him. No one checked to see if really was the CEO sending the email.
According to the Hawks, over $50 million was lost in the scheme called the BTC Global scam – with South Africans investing between R16,000 and R1.4 million each. To avoid becoming a victim to a Bitcoin Global scheme, thoroughly research it before investing your money. In the case of BTC Global, it was run by “master trader” Steven Twain. A search for Twain showed he did not exist, however.
The Consumer Protection Act describes any scheme that offers returns of 20% above the repo rate as a “multiplication scheme” – otherwise known as a Ponzi scheme. If you intend joining the CryptoCurrency community, you will need to be discerning towards new ICOs.
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